Tax Matters (Tables)

12 Months Ended

Dec. 31, 2022

Schedule of Income before Income Tax, Domestic and Foreign


Components of Income from continuing operations before provision/(benefit) for taxes on income include:
	Year Ended December 31,
(MILLIONS)	2022		2021		2020
United States	$	5,032	$	6,064	$	(2,887)
International	29,697		18,247		9,924
Income from continuing operations before provision/(benefit) for taxes on income(a), (b)	$	34,729	$	24,311	$	7,036

(a)2022 v. 2021––The decrease in domestic income is primarily related to net losses on equity securities in 2022 versus net gains on equity securities in 2021, lower net periodic benefit credits and higher restructuring charges and certain acquisition-related costs, partially offset by Paxlovid income and lower acquired IPR&D expenses. The increase in the international income is primarily related to Paxlovid and Comirnaty income partially offset by lower net periodic benefit credits.

(b)2021 v. 2020––The domestic income in 2021 versus domestic loss in 2020 was mainly related to Comirnaty income, lower asset impairment charges, net periodic benefit credits in 2021 versus net periodic benefit costs in 2020 and higher net gains from equity securities, partially offset by higher R&D expenses. The increase in the international income was primarily related to Comirnaty income, net periodic benefit credits in 2021 versus net periodic benefit costs in 2020 and lower asset impairment charges.

Schedule of Provision for Taxes on Income


Components of Provision/(benefit) for taxes on income based on the location of the taxing authorities include:
	Year Ended December 31,
(MILLIONS)	2022		2021		2020
United States
Current income taxes:
Federal	$	2,744	$	3,342	$	372
State and local	(20)		34		56
Deferred income taxes:
Federal	(3,271)		(3,850)		(1,164)
State and local	(310)		(491)		(131)
Total U.S. tax provision/(benefit)	(857)		(964)		(867)




International
Current income taxes	4,368		2,769		1,517
Deferred income taxes	(183)		48		(279)
Total international tax provision/(benefit)	4,185		2,816		1,237
Provision/(benefit) for taxes on income	$	3,328	$	1,852	$	370

Schedule of Effective Income Tax Rate Reconciliation


The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations follows:
	Year Ended December 31,
	2022		2021		2020
U.S. statutory income tax rate	21.0	%	21.0	%	21.0	%

Taxation of non-U.S. operations (a), (b)	(5.0)		(4.3)		(9.9)
Tax settlements and resolution of certain tax positions(c)	(3.0)		(0.4)		(2.7)
Foreign-Derived Intangible Income deduction(d)	(1.9)		(0.6)		—
Certain Consumer Healthcare JV initiatives(c)	—		(6.0)		—
U.S. R&D tax credit	(0.6)		(0.5)		(1.4)
Interest(e)	0.2		0.4		1.1
All other, net(f)	(1.1)		(2.0)		(2.8)
Effective tax rate for income from continuing operations	9.6	%	7.6	%	5.3	%

(a)For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the U.S., together with the U.S. tax cost on our international operations, changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions,” as well as changes in valuation allowances. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year, and the rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the U.S. tax implications of our foreign operations is a significant component of our effective tax rate each year and generally offsets some of the reduction to our effective tax rate each year resulting from the jurisdictional location of earnings; (iii) the impact of certain tax initiatives; and (iv) the impact of changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as the U.S. tax cost on our international operations, can vary as a result of operating fluctuations in the normal course of business and as a result of the extent and location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See also Note 5A for the components of pre-tax income and Provision/(benefit) for taxes on income, which is based on the location of the taxing authorities, and for information about settlements and other items impacting Provision/(benefit) for taxes on income.

(b)In all years, the reduction in our effective tax rate is a result of the jurisdictional location of earnings and is largely due to lower tax rates in certain jurisdictions, as well as manufacturing and other incentives for our subsidiaries in Singapore and, to a lesser extent, in Puerto Rico. We benefit from Puerto Rican tax incentives pursuant to a grant that expires during 2053. Under such grant, we are partially exempt from income, property and municipal taxes. In Singapore, we benefit from incentive tax rates effective through 2048 on income from manufacturing and other operations.

(c)See Note 5A.

(d)The higher rate benefit from the Foreign-Derived Intangible Income deduction in 2022 is mainly the result of the TCJA requirement to capitalize R&D costs for tax years beginning after December 31, 2021.

(e)Includes changes in interest related to our uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions”.

(f)All other, net is primarily due to routine business operations.

Schedule of Deferred Tax Assets and Liabilities


Components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
	2022 Deferred Tax*				2021 Deferred Tax*
(MILLIONS)	Assets		(Liabilities)		Assets		(Liabilities)
Prepaid/deferred items	$	1,768	$	(533)	$	1,889	$	(456)
Accrued/deferred royalties	2,127		—		777		—
Inventories	672		(262)		408		(56)
Intangible assets(a)	1,445		(6,288)		1,542		(4,577)
Property, plant and equipment	112		(1,845)		117		(1,647)
Employee benefits(b)	1,314		(276)		1,594		(178)
Restructurings and other charges	302		—		303		—
Legal and product liability reserves	385		—		373		—
Research and development(c)	4,137		—		1,656		—
Net operating loss/tax credit carryforwards(d), (e)	2,224		—		1,431		—
Unremitted earnings	—		(51)		—		(45)
State and local tax adjustments	151		—		197		—
Investments(f)	91		(208)		70		(689)
All other	78		(56)		89		(68)
	14,806		(9,519)		10,446		(7,714)
Valuation allowances	(1,541)		—		(1,462)		—
Total deferred taxes	$	13,265	$	(9,519)	$	8,983	$	(7,714)
Net deferred tax asset/(liability)(g)	$	3,746			$	1,269

*The deferred tax assets and liabilities associated with global intangible low-taxed income are included in the relevant categories. See Note 1 Q.

(a)The increase in net deferred tax liabilities in 2022 is primarily due to the acquisition of intangible assets related to GBT, Arena and Biohaven, partially offset by the amortization of intangible assets and certain impairment charges.

(b)The decrease in net deferred tax assets in 2022 is primarily due to changes in pension and postretirement benefit obligations, as well as the performance of plan assets reported in the period. See Note 11.

(c)The increase in deferred tax assets in 2022 is related to the TCJA requirement to capitalize R&D costs for tax years beginning after December 31,2021.

(d)The increase in deferred tax assets in 2022 is primarily due to the acquisition of net operating loss carryforwards and credit carryforwards related to Arena, GBT and Biohaven. See Note 2A.

(e)The amounts in 2022 and 2021 are reduced for unrecognized tax benefits of $1.2 billion and $3.0 billion, respectively, where we have net operating loss carryforwards, similar tax losses, and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to settle any additional income taxes that would result from the disallowance of a tax position.

(f)The decrease in net deferred tax liabilities in 2022 is primarily due to the impact of foreign currency translation adjustments related to our equity-method investment in Haleon/the Consumer Healthcare JV. See Note 2C.

(g)In 2022, Noncurrent deferred tax assets and other noncurrent tax assets ($4.8 billion), and Noncurrent deferred tax liabilities ($1.0 billion). In 2021, Noncurrent deferred tax assets and other noncurrent tax assets ($1.6 billion), and Noncurrent deferred tax liabilities ($0.3 billion).

Schedule of Unrecognized Tax Benefits Roll Forward


The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS)	2022		2021		2020
Balance, beginning	$	(6,068)	$	(5,595)	$	(5,381)
Acquisitions	(52)		—		37
Divestitures(a)	—		—		265
Increases based on tax positions taken during a prior period(b)	(67)		(111)		(232)
Decreases based on tax positions taken during a prior period(b), (c)	1,339		103		64
Decreases based on settlements for a prior period(c),(d)	842		24		15
Increases based on tax positions taken during the current period(b)	(701)		(550)		(411)
Impact of foreign exchange	90		22		(72)
Other, net(b), (e)	122		40		120
Balance, ending(f)	$	(4,494)	$	(6,068)	$	(5,595)

(a)For 2020, related to the separation of Upjohn. See Note 2B.

(b)Primarily included in Provision/(benefit) for taxes on income.

(c)Primarily related to effectively settling certain issues with the U.S. and foreign tax authorities. See Not e 5A.

(d)Primarily related to cash payments and reductions of tax attributes.

(e)Primarily related to decreases as a result of a lapse of applicable statutes of limitations.

(f)In 2022, included in Income taxes payable ($40 million), Other current assets ($3 million), Noncurrent deferred tax assets and other noncurrent tax assets ($1.2 billion), Noncurrent deferred tax liabilities ($5 million) and Other taxes payable ($3.2 billion). In 2021, included in Income taxes payable ($19 million), Other current assets ($42 million), Noncurrent deferred tax assets and other noncurrent tax assets ($3.0 billion), Noncurrent deferred tax liabilities ($5 million) and Other taxes payable ($3.0 billion).

Schedule of Other Comprehensive Income (Loss), Components of Income Tax Expense (Benefit)


Components of the Tax provision/(benefit) on other comprehensive income/(loss) include:
	Year Ended December 31,
(MILLIONS)		2022		2021		2020
Foreign currency translation adjustments, net(a)		$	(126)	$	43	$	(119)

Unrealized holding gains/(losses) on derivative financial instruments, net		183		84		(88)
Reclassification adjustments for (gains)/losses included in net income		(270)		29		(25)

		(87)		114		(113)
Unrealized holding gains/(losses) on available-for-sale securities, net		(164)		(44)		45
Reclassification adjustments for (gains)/losses included in net income		226		(4)		(24)

		62		(48)		22
Benefit plans: prior service (costs)/credits and other, net		(5)		27		12
Reclassification adjustments related to amortization of prior service costs and other, net		(29)		(47)		(31)
Reclassification adjustments related to curtailments of prior service costs and other, net		(3)		(18)		1


		(37)		(38)		(17)
Tax provision/(benefit) on other comprehensive income/(loss)		$	(187)	$	71	$	(227)

(a)Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that are expected to be held indefinitely.